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    Adjusting entries for stock, dividend, long term investments

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    E12-4

    Rantzow-Lear Company buys and sells securities expecting to earn profits on short-term difference in price. The company's fiscal year ends on December 31. The following selected transactions relating to Rantzow-Lear's trading account occurred during December 2011 and the first week of 2012.

    2011
    Dec 17 Purchased 100,000 Grocers' Supply Corporation preferred shares for $350,000.
    28 Received cash dividends of $2,000 from the Grocers' Supply Corporation preferred shares.
    31 Recorded any necessary adjusting entry relating to Grocers; Supply Corporation
    2012
    Jan 5 Sold the Grocers' Supply corporation preferred shares for $395,000

    Required
    1. Prepare the appropriate journal entry for each transaction
    2. Indicate any amounts that Rantzow-Lear Company would report in its 2011 balance sheet and income statement as a result of this investment.

    E12-6

    On February 18, 2011, Union Corporation purchased 10,000 shares of IBM common stock as a long-term investment at $60 per share. On December 31, 2011 and December 31, 2012, the market value of IBM stock is $58 and $61 per share, respectively.

    Required
    1. What is the appropriate reporting category for this investment? Why?
    2. Prepare the adjusting entry for December 31, 2011
    3. Prepare the adjusting entry for December 31, 2012

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    Solution Summary

    Adjusting entries for stock, dividends, long term investments are examined.

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